Home prices are up 8 percent from December 2011 in Hong Kong. That worries the government as it fears a possible sharp price drop would further weaken a dragging economy.

More curbs on mortgage lending would be one measure the government might take to return the residential market to stability.

Tax-News.com in Hong Kong notes the last measures taken by the government to slow speculative activity were in April 2010, when it raised the stamp duty for properties valued more than HKD20 million ($2.57 million US) from 3.75% to 4.25%.

At that time, the government also disallowed deferred payment of stamp duty on residential property transactions. In November 2010, the Hong Kong introduced a Special Stamp Duty (SSD) on the short-term resale of residential property. The SSD ranges between 5% and 15%, depending on the holding period before resale

Hong Kong Financial Secretary John C Tsang recently told the Legislative Council a further slowdown in the city's economy could be coming.

Gross domestic product levels of only 1 percent to 3 percent have been forecast for Hong Kong in 2012.

At the same time, Tsang was announcing his assessment of the economy, Australia-based Macquarie analysts warned in a statement, "The physical property market (in Hong Kong) looks precarious over the next six months, and we don't think developers' stocks have factored in a worst-case scenario yet."

Macquarie said housing prices could fall between 5 percent to10 percent in the next 12 months. The reason: an expected slowing in Hong Kong's economy, mounting global economic risks and new supply.

Macquarie notes home prices in Hong Kong are up 7.6% since the start of the year, and the share price of major property developers are down 0.4% as a group.

Macau's gaming revenue recorded y-o-y growth for the 11th month in a row, driving A residential property market rebounded amid the robust primary sales, leading to strong price growth in some of the residential projects.

According to JLL's latest Land and Residential Market Review, Hong Kong residential prices are now as much as 75.9% higher than the market peak in 1997 after the city was handed back to China twenty years ago.

Hong Kong Monetary Authority's (HKMA) two-way squeeze to control an overheating property market is unlikely to have any material effect on still-upbeat sentiment for residential properties in Hong Kong.